Week in Review: Colorado Trumps Washington on Recreational Cannabis, For Now

By Chris Walsh

Which state will serve as a model for other markets when it comes to crafting a recreational cannabis program: Colorado or Washington?

Colorado appears to be the clear choice at this point from a business perspective, with its recreational marijuana market humming along nicely. The industry is already generating tens of millions of dollars in sales, and entrepreneurs are reporting enviable profits.

Washington State’s program, on the other hand, is mired in controversy and has experienced several setbacks.

The latest issue for the state emerged earlier this week, when the agency overseeing the program decided to reduce the number of cultivation licenses a business can apply for and also slash the amount each operation can grow. This is a major change at a relatively late stage of the rule-making process, and it’s creating huge problems for entrepreneurs who have already invested time and money in their business plans and applications.

“People are apoplectic,” Washington attorney Ryan Agnew said. “Many people had already formed partnerships and made the capital outlays necessary to grow at (the higher production cap).”

Additionally, sales tax estimates released this week by a state agency projected that actual recreational marijuana sales might not begin until June 2015 – a full year later than anticipated at this point. While that’s a worst-case scenario, the fact that it’s even being floated as a possibility is telling.

Although Washington and Colorado both legalized recreational marijuana in November of 2012, the two states have taken very different paths since then.

Washington put strict limits on cultivation and the number of retail stores, and the original demand estimates it used to set those rules now appear woefully off base. It also has flip-flopped on several key aspects of the program, and its ban on home growing in the recreational market could exacerbate supply issues.

“The MMJ community was cut out of the drafting of (the law) and thus missed an opportunity to share their knowledge of the market and work in rules that might benefit existing MMJ businesses,” attorney Agnew said, adding that there are also issues with location restrictions, high tax levels and large operating and startup costs.

Colorado, by comparison, created a clear division between the medical and recreational industries so the two could co-exist. The state also gave current MMJ stakeholders a huge role in the rule-making process, helping to ease the transition and avoid controversy.

Additionally, it left a good chunk of the industry in the hands of the free market, allowing an unlimited number of retail stores and cultivation sites to participate and letting residents cultivate their own cannabis.

This structure allowed officials to develop rules and regulations on the industry quickly and efficiently. Colorado worked aggressively to get the first retail businesses licensed, leading to an on-time, relatively smooth roll-out of retail sales.

Of course, first is not always best. And there are some key differences in the markets.

Washington never developed rules for dispensaries, and the medical marijuana industry as it exists now in the state is technically illegal. Washington therefore faced additional challenges from the start, and the process likely would have been more controversial than in Colorado anyway.

Additionally, each state has different concerns and a different idea of where they see the industry going.

We also have no idea how this will play out over time. Washington’s model might emerge as the national blueprint once it clears these initial hurdles, while problems certainly could crop up in Colorado (particularly if unrestrained growth invites scrutiny from the feds).

But the early results show some hiccups in Washington’s initial approach where businesses are concerned, and its move to eliminate – rather than embrace and restructure – the medical marijuana industry is a crucial mistake in the eyes of many.

For these reasons, other states considering recreational marijuana legalization could take more pages from Colorado’s playbook.

…I don’t know but it appears that Colorado had much more professional business acumen when it came to legalizing the industry properly and making sure the state benefited from the taxes that it collects.

Hats off to Colorado, but sooner or later Washington state will catch up. I have a feeling that the other state interested in legalizing marijuana are sharper even than Colorado and will surpass Washington, but all well that ends well, and sooner or later the message will come across to the politicians that it is indeed time to process this industry to the mutual benefit of all concerned in its legalization…

I disagree completely. The separation of growing, processing and retailing will prove the more viable one in the long term as each sector specializes and thus gains efficiency. The Washington model is much more likely to yield profitable operations as it limits the number of retailers and growers and thus ensures a profitable market for good operators. The Washington model with it’s restrictions of out of state growers and joint shareholding corporations insures that the market is “owned” by many smaller growers and those who have been involved with the industry. Washington is right to severely restrict the phony medical marijuana industry to that small number that actually suffer from medical problems amiable to help from cannabis. Any honest observer realizes that the whole MMJ deal was just a clever way to partially legalize cannabis and the sooner this goes away the firmer ground the whole industry will rest upon. Once legal marijuana is available what is the justification for keeping a separate parallel MMJ industry going with all the duplication of regulatory cost and the potential for diversion that will surely bring unwanted federal scrutiny?
Washington is taking it’s time and building a robust system that, I predict, will be the model for far more states than will Colorado’s. Just as when Washington as first in the nation pioneered the organic certification rules that are now copied by many states and even the federal government a cautious, step by step approach will prove it’s value in the long run. Those applicants who counted on getting anywhere near the applied square footage of growing space were not paying attention once the huge number of applicants was revealed. Washington always said how many square feet of canopy they intended to license and they were very open with how they would allocate this number if there were extra applicants. As it is once the apps were in and they were able to observe the start of sales in Colorado the state wisely increased the total canopy license plans and changed how many licenses one entity could hold. The process has been fair and open and we have been informed we will receive a license for twice as many square feet as I estimated when I saw the size of the flood of applicants.
I applaud the Washington state liquor control board. They have moved expeditiously to fairly deal with a much more dynamic situation than they anticipated. Everyone I have dealt with there has impressed me as hard working and anxious to get this right the first time. They are going to build a market that almost guarantees success for good operators. We should have our grow license by the end of march and retailers should see a flow of supply by June. Plenty of time to build a strong and long lasting profitable industry.

Washington is shooting it’s self in the foot. If they want tax revenue why are they limiting production site size and numbers and number of sales sites. It seems they want to make it as hard as they. It will be a disaster when they finally allow the market to open. As the article (and many others recently) have mentioned, it is very unfair to tighten the rules (which were already too strict) after groups have spent time and money getting ready for the supposed spring 2014 launching. They are giving other states a wonderful lesson in how NOT to do it.

It’s the Wild West, and I for one am psyched to be part of history in Washington the Evergreen state! The only way the Feds will let legal Mj flourish is money folks. So think about that when you’re lauding people growing their own. I’m more than happy to process and sell to legal stores. CO will prove untenable over time.

@jane Klein they absolutely involved the marijuana community in WA prior to making these laws. Remember we had state run liquor stores until last year. We’re doing fine, and the folks who outlawed money prior to licensing are fools who have been caught up by that green greed. Capitalism is a bitch, poor business people will simply fail.

This article is spot on. As a cannabis stakeholder in Seattle I’m embarrassed. To all the apologists for the Washington St. Liquor Board impressed by how “hard working” they are, my impression is they’re way out of their depth. Their ineptitude at properly forecasting and understanding the business contributes to an erosion in investor confidence. Today’s regulatory climate is like a banana republic. All the while the black market thrives and medical patients face new restrictions. Text book case of the future how not to do it. Kudos to Colorado having the brass to absorb and subsequently co-opt a pre-existing quasi-legal market and taking it to the bank.

Too bad Washington Liquor believes its #1 mission is to conduct a vendetta against the medical market instead of building an efficient tax revenue machine like Colorado has done. Too bad they hired like minded Californians BOTEC to be advisors in chief. The RAND Corp study on WA marijuana demand puts BOTEC and WSLCB to shame, showing it’s possible to get it the first time. The new clampdown on medical seems seriously backwards, it wasn’t in Initiative 502’s language but it sure is in the minds and desires of ignorant Washington bureaucrats. Congratulations Colorado.

I’ve been to Colorado and seen their operations that distribute their product. their model is completely different than what Washington wants to do. All of Colorado’s operations are employed by growers that distribute to Specific dispensary storefronts. All those employees are working for the same person.. however Washington is securing I 502 (100sg ft +)warehouses to farm legal operations but with multiple different random growers. Yes, their licensed but..all going to be growing different product…distributing to all different types of businesses. Huge conflict under one roof. You know how it is ladies and gentlemen. Everyone thinks they have the best. You put 40 of those people under one roof…pshhhh. That’s the disconnect and that’s why were getting trumped up here in Washington.

At 50 a month it will take over three years to process just the producer applications.There will NOT be any stores opening anytime soon, they don’t even have the lottery rules written yet! and those who DO harvest this summer won’t have any place legal to sell it. In addition , the legislature adjorned without doing a DAMNED thing about local opt outs and obstructionism,and can’t now for at least another year, so the black market will thrive–so says the LCB themselves!
In other words it is turning into a complete disaster!